Raising guidance value: A sound move

The Karnataka government’s move to increase the guidance value on properties by 25-30 per cent across the state will help mop up additional revenue while curbing, to some extent, black money transactions in real estate deals. Guidance value is the government-fixed minimum sale price of a property in a particular area. With the revision, the state would earn an additional Rs 2,000 crore in the form of stamp duty which is imposed on the sale value of the property, according to Revenue Minister Krishna Byre Gowda. While the law requires the guidance value to be increased by 15 per cent every year, there was no revision after 2019, that is, for four-and-a-half years. This decision not to raise the guidance value was attributed, rightly or wrongly, to the Covid pandemic.

In his budget speech, Chief Minister Siddaramaiah had fixed a target of Rs 25,000 crore for the Stamps and Registration Department for the 2023-24 fiscal. The Chief Minister had also promised to adopt a scientific and rational system for determining guidance value based on a Geographical Information System (GIS). While the new rates will come into effect in Bengaluru on October 1, it will be implemented at the district level in a phased manner.

As things stand today, there exists a huge gap between the actual market rate at which a property is sold or registered, and the guidance value on which stamp duty and capital gains tax are paid. According to the Revenue Minister, in Electronics City and surrounding areas, the market price of a property is around 500 times the guidance value. If the guidance value for properties along the national highways is around Rs 5-10 lakh per acre, the market price is more than Rs 10 crore. In such places, the guidance value will be revised by 50%. The difference between the guidance value and market value is usually paid in cash, thereby evading both stamp duty and capital gains tax. The Income Tax department has repeatedly pointed out that under-reporting of transaction price leads to generation and investment of black money. Such transactions allow a buyer to convert black money into immovable property, while putting unaccounted wealth in the hands of the recipient.

The revision may lead to a marginal increase in property prices as the stamp duty component will also go up with the revision of the guidance value. But the move is in the larger interest of the state, the real estate sector, and property buyers because it will infuse transparency, curtail the use of black money, and at the same time increase the revenue of the government.